A distributor with 1,000 employees—how much annual revenue should they generate? It must be an astronomical figure, right? Actually, not necessarily. Because among these 1,000 people, most are in-store promoters assigned to retail terminals. With 1,000 promoters, the monthly wage bill alone would be 2 million yuan. Why do distributors assign promoters to stores? Because without promoters, products don't move. This is not an isolated phenomenon. Promoting sales at the terminal level is becoming a trend among distributors, developed as a core competency, whether proactively or reactively. For example, some distributors borrow from the operational experience of FMCG giants, introducing "regular visits" into product promotion, helping stores with display and promotional activities regularly, and offering services like phone follow-ups and birthday parties—even mediating marital disputes.

Manufacturers, distributors, and retailers are all off-track However, Zhang Xiaowu, General Manager of Richu Commerce, holds a different view. He believes that manufacturers, distributors, and retailers are all off-track. "Manufacturers should focus on products and brands, distributors should reduce handling costs, and retailers should serve consumers. But now distributors are forced to engage with consumers and also handle brand promotion. They don't understand it but have to do it—this is not a good phenomenon." From the distributor's perspective: labor costs are rising daily. In the past, they could allocate part of the market budget to this, but now it's hard to do even that. The expense ratio is getting higher, and with each new category, they must invest more effort in cultivation. Since they're not professionals, it's becoming increasingly difficult.

Doing it may not yield good returns; not doing it yields even less So, can distributors skip these services? If distributors don't do market work, then no one will develop the product market. If manufacturers do it themselves, the costs are too high, and they lack understanding of various regions, making it difficult to cultivate area by area. Manufacturers allocate budgets, but actual sales still depend on distributors' efforts. Every sale is hard-earned by the distributor. If they don't do these things, it's hard to guarantee any sales for the categories they take on. So, distributors do many things without necessarily seeing good returns, but if they don't do them, they'll have even less.

Another approach In this deadlock, are we just supposed to watch helplessly? Not necessarily. Zhang Xiaowu has his own solution. In Zhang's view, the future market will see manufacturers, distributors, and terminals each clearly defining responsibilities and doing their own jobs. "As the middle link, distributors should have transparent pricing, with fixed markups visible to all. They only charge for transportation costs, not a percentage of product fees. When you place an order, they deliver. It's like having a wholesale market next door. All you do is choose categories based on your consumers' needs." To achieve this goal, Zhang's first step is to build a B2B e-commerce platform. This B2B platform looks similar to Tmall or JD.com: on PC or mobile, it displays a large number of products in a categorized layout, with product detail pages, prices, ordering and checkout processes, and options for logistics providers. The only difference is that Tmall and JD.com target C-end consumers, while Zhang's B2B platform targets retail stores. Such B2B e-commerce platforms have been vigorously developed in the FMCG industry for two or three years now. Even Ma Yun and Liu Qiangdong have entered the fray, with Alibaba's Retail Link and JD.com's New Channel, claiming this is the only trillion-yuan market left after C-end e-commerce. Traditional channel players are not to be outdone, banding together and launching various B2B platforms from regional bases, unwilling to cede the vast distribution territory after losing the C-end.

Why is B2B e-commerce so hot? This brings us to China's distribution channels. China's distribution channels are a multi-tier wholesale system, with traditional distributors as the main operators, divided into national, provincial, municipal, county-level agents, and secondary wholesalers. In the past, traditional distributors operated a "low-efficiency, low-cost" business system. But now, they are a low-efficiency, high-cost system. One indicator proves this: China's logistics costs account for 18% of GDP, while the US is only 8%. Within logistics costs, the distributor's last-mile delivery cost is about 5% to 10%, averaging around 7%, while the distributor's average profit may be only about 3%.

Why are distributors so inefficient?

  1. Deep distribution used to be a low-efficiency, low-cost model, but now it's become low-efficiency and high-cost. Deep distribution involves manufacturers or higher-level distributors hiring many salespeople to bypass secondary wholesalers and directly take orders, build relationships, and provide services at retail terminals, with secondary wholesalers only handling delivery. The past success of deep distribution relied on two conditions: first, there was room for growth, so companies pursued growth at any cost; second, deep distribution was a human-wave tactic, premised on low labor costs. Saying "at any cost" wasn't really costly then. However, traditional deep distribution is essentially a "clock-in" management model. It increased product penetration at terminals, but at a high cost. So, once labor costs rise, deep distribution becomes unsustainable.
  2. The traditional van-selling model is very inefficient. Distributors used to combine delivery, shelf restocking, relationship building, and promotion in one trip, leading to low efficiency. According to research, a van in van-selling mode averages only 5-6 transactions per day.
  3. Some strong brands require distributors to assign "dedicated personnel and vehicles" to ensure sales, further reducing efficiency. When there was growth space and low labor costs, this wasn't a big problem. Now, with industry volume capped and labor costs rising, this issue becomes prominent. When sales are growing, efficiency and cost are secondary. When growth is difficult, you need to reduce costs by improving efficiency, so efficiency and cost gain attention.

So why can B2B e-commerce improve efficiency?

  1. Retail stores can order directly via PC or mobile, eliminating the need for distributors or manufacturers to send salespeople. This saves a huge amount in labor costs. Of course, there's a premise: you've already completed terminal distribution and relationship building. The B2B platform serves merely as an ordering and management tool, not requiring personal visits each time (like clocking in).
  2. B2B centralized warehousing and distribution logistics is a low-cost delivery tool. Reality has proven that centralized warehousing and distribution can control delivery costs at around 3%, saving more than half of delivery expenses. Moreover, delivery is not the distributor's core function, so outsourcing it doesn't affect normal operations. Remember, after over a decade of development, C-end e-commerce has nurtured a nationwide logistics system. In terms of capillary delivery, China's logistics system is world-leading and inexpensive. Even if B2B platforms don't build their own centralized warehousing, they can outsource to companies like S.F. Express or the "Four Tong and One Da" (STO, YTO, ZTO, Yunda, and Best) without issue.

A wholesale market next door B2B e-commerce improves efficiency from the upstream supplier's perspective, but what's in it for retail stores? If there's no benefit, why would stores use this B2B platform? I'd still prefer a real person to come and discuss purchasing with me! Zhang Xiaowu says the benefit is "a wholesale market next door." How so? First, convenient restocking without tying up inventory capital. What do stores fear most? Overstocking! What do they fear even more? Stockouts! Because if you're constantly out of stock, customers will naturally think you don't have a full range and switch to other purchasing channels, causing you to lose foot traffic. But to avoid stockouts, you normally have to overstock, because it's not feasible to make a special trip to the wholesale market for a single batch of goods. The travel and transportation costs would exceed the value of the goods themselves, making it uneconomical. So what to do? You have to overstock! Overstocking means risk: if a batch doesn't sell well, tens of thousands of yuan go down the drain. If the wholesale market were next door, you could buy as much as you need, sell as you go, and even save on warehouse rental costs. Given current logistics costs, this isn't impossible. If store owners can estimate costs and replenish promptly based on daily purchase volumes, it's not difficult. For Zhang Xiaowu, it's simply a matter of staying by the warehouse, taking orders, and arranging delivery. Sending salespeople to visit stores incurs transportation, accommodation, and entertainment costs, and prices often get discounted or kickbacks occur. The market isn't transparent, and salespeople often cheat agents, manufacturers, and terminals. Using logistics is more efficient. Second, shorter restocking time. China's logistics level is among the world's best. Same-city delivery is typically next-day, even same-day. Remote areas take no more than a week. Order immediately, and goods arrive within a day or two, saving considerable time compared to visiting the wholesale market to inspect goods, then ordering, then waiting for delivery. Third, faster capital turnover. Because restocking is quick and timely, less capital is tied up in inventory, allowing the same money to be used for other purposes, speeding up capital flow. Whether expanding the store or opening new ones, there's capital to do it. Fourth, no stockouts or shortages. With the wholesale market next door, you can restock anytime, and delivery times are greatly shortened, maintaining a constant supply. No more long replenishment periods after a stockout, which could cause negative customer perceptions.

Who loses business when you do B2B e-commerce? In the current mature market, B2B e-commerce will inevitably take away some existing interests. Just as Taobao and JD.com diverted business from offline stores, B2B e-commerce will also take business from some. To succeed, you must understand whose business you're taking! The essence of B2B e-commerce is no different from e-commerce in general: leveraging massive transaction volumes and order quantities, utilizing capital flow, logistics, and information flow to improve efficiency and reduce costs. If suppliers and demanders are the two ends, then distributors are the middle channel. Distributors are divided into first-tier and second-tier. First-tier distributors send goods through major channels to second-tier distributor networks, which then use finer, extended channels to deliver to every corner of the city. This forms a network. Since the existing network already works well, why does B2B need to exist? B2B essentially reorganizes these existing channel networks, connecting the nodes between large and small pipes, expanding small pipes, and shortening, merging, and thickening the original links. This achieves scale and improves efficiency. Zhang Xiaowu's "wholesale market next door" is exactly this approach.

Why B2B e-commerce has a promising future! Zhang Xiaowu's idea is to split existing big brands and continue operating them through the current distributor model, while small brands are handled via the B2B platform, selling at a 15% profit margin regardless of product price. This low-margin model has a huge advantage, which is also the biggest selling point of B2B e-commerce—low prices! Compared to existing platforms like Alibaba, this is where Zhang's Yinglian Wholesale has its edge. Stores are not like consumers who care about brand or category variety on a platform. They are rational; for products with similar sales appeal, they only care about low prices! In the baby products niche, after considering all factors, Yinglian Wholesale offers the best prices, so stores choose to purchase there. This creates a positive cycle: Yinglian offers good prices to terminals, attracting more terminals; with more orders, Yinglian gets better deals from upstream suppliers, leading to even lower prices. Why has JD.com thrived despite Taobao's pressure? Because of its powerful logistics system! JD.com is now the fifth-largest logistics system in China. From the start, JD.com invested heavily in building smart warehouses, and later used its massive order volume to spread costs, continuously lowering marginal costs. Thanks to its strong logistics, JD.com can offer same-day or next-day delivery, giving it a unique competitive advantage in the C-end. For B2B e-commerce to develop, as order volumes grow, it must also invest in ground warehousing and logistics infrastructure. By further expanding categories and lowering marginal costs, as long as product profit exceeds delivery costs, you can take on low-margin business and continuously increase revenue. B2B must use reasonable profit as an entry point, build solid ground warehousing and logistics infrastructure to gain an advantage, and then expand categories. Therefore, I am very optimistic about the development of B2B e-commerce.

Source: Zhongtong Observation -END-